Reporting season started with bank earnings being particularly strong | Finance and Markets

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The reporting season had officially started this week with some of the largest US companies already published their earnings for the second quarter. Over 16% of the S&P 500 companies have announced their results so far. Of these, 79% of S&P 500 companies have reported a positive EPS surprise and 62% of companies have reported a positive revenue surprise.

Before the start of the reporting season, analysts expected S&P 500 earnings to decline by about 3%. So far, there are no surprises. In most cases, when the bar is set so low, the results are in line with expectations or slightly better.

Next week will be busy for the investors, as about 25% of the broader companies have to announce their second-quarter results.

For the second quarter, the S&P 500 is reporting a year-over-year decline in earnings of -1.9%, but year-over-year growth in revenues of 3.8%. Given the dichotomy in growth between earnings and revenues, there are concerns in the market about net profit margins for S&P 500 companies in the second quarter.

The blended net profit margin for the S&P 500 for Q2 2019 is 11.3%. If 11.3% is the actual net profit margin for the quarter, it will mark the first time the index has report two straight quarters of year-over-year declines in net profit margin since Q1 2016 and Q2 2016. Ten of the eleven sectors are reporting a year-over-year decline in their net profit margins in Q2 2019, led by the Information Technology (20.6% vs. 22.7%) sector.

Looking at the second half of 2019, analysts see a decline in earnings for the third quarter followed by mid-single-digit earnings growth in the fourth quarter.

The main obstacle in front of the investors continues to be the slowdown in global economic growth, as well as the Sino-American trade war, which seriously hinders investments and sales.

Last week was busy for investors, as some of the world’s largest banks and technology companies posting their quarterly financial statement.

Bank earnings

Citigroup kicked off the earnings season on Monday, beating the analysts’ expectations for profit and revenue. The financial reports of J.P. Morgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley and Bank of America were also quite positive, giving investors optimism for the state of the banking institutions.

Citigroup posted a profit of 4.79 billion USD, or 1.95 USD per share, compared with the 1.80 USD estimate of analysts. The bank said revenue climbed 2% to 18.76 billion USD, exceeding the 18.5 billion USD estimate, powered by a 350 million USD pretax gain on the Tradeweb IPO. Revenue in Citigroup’s global consumer bank rose 3% to 8.5 billion USD as profit climbed 11% to 1.41 billion USD.

Wells Fargo reported a net income of 6.2 billion USD in the second quarter, up from 5.9 billion USD in the first quarter and 5.2 billion USD in the year-earlier period. However, net interest income came in just shy of estimates at 12.1 billion USD. The bank reported earnings of 1.30 USD per share on revenues of 21.58 billion USD.

J.P. Morgan Chase posted a record second-quarter profit of 9.65 billion USD, 16% higher than a year earlier, or 2.82 USD per share. The revenue of 29.57 billion USD was 4% higher than a year earlier and edged out expectations of 28.9 billion USD.

Goldman Sachs reported a quarterly profit of 5.81 USD per share on 9.46 billion USD of revenue, compared to the comparable year-ago quarter of 5.98 USD on 9.40 billion USD in revenue.

All these earnings highlight the stability of the US financial system and the operations of the banks, which are gaining strong profits amid Trump’s tax reform, strong international operations and the 10-year-long period of economic expansion.

Technology earnings

Microsoft, IBM and Netflix published their financial statements last week, suggesting some weaknesses of their business models, despite the strong sales and revenue.

Netflix reported a rare loss in US subscribers and a large miss on international subscriber adds. The earnings per share amounted to 0.60 USD on revenue of 4.92 billion USD versus 0.56 USD expected on revenue of 4.93 billion USD. Domestic paid subscriber additions report a loss of 126,000, while the international paid subscriber added 2.83 million. Global streaming paid memberships are 151.56 million, up 21.9% year over year. Netflix forecast 7 million global paid net adds for the next quarter and provided revenue guidance of 5.25 billion USD.

IBM reported a second-quarter earnings decline of 4.2% to 19.2 billion USD. This is the fourth consecutive quarter of revenue decline for the company. However, IBM has been able to increase profits, among other things, thanks to lower costs – 4% to 2.5 billion USD, and thus stronger than expected by financial experts.

Microsoft reported earnings of 1.37 USD per share in Q2 2019, beating the analysts’ expectations. The company’s revenue rose by 12% YoY to 33.72 billion USD. It’s the ninth straight quarter of double-digit annualized revenue growth.